Gold prices reached a new historical high of $2585 (Rs 73500) due to a weaker dollar and increased expectations of a 50-bps rate cut by the Fed.

Gold prices have fallen from recent record highs, as increasing yields and a stronger currency point to a less aggressive rate decrease by the Federal Reserve.

The present macroeconomic backdrop is creating a “perfect storm” for gold, making it one of the top-performing asset classes in 2024. Gold’s stratospheric journey to gleaming new heights has continued to accelerate this year, cementing its legendary status as the ‘must-have’ asset class in all portfolios.

Next week’s CPI report is likely to highlight this structure, and in the absence of any shocks, the data may not do much to alleviate slowdown concerns, as the attention has switched to the growth side of the story.

The gold price has risen beyond $2440 (~ Rs 68500) this week as the US dollar lowers and US Treasury bond rates fall due to dovish Fed predictions and risk-on sentiment. A rebound is expected in gold and silver prices this week as prices seem to have reached a short-term bottom.

There are two major announcements in this budget for the bullion industry, which is considered positive by the market participants.
1) Reduction in Duty on Gold and Silver from 15% to 6%
2) Changes in the capital gain tax rate in holding and selling gold in physical or digital form.

Gold gained 3% in the first half of the week to a record high of $2488 (Rs 74730) and then fell by 4% in the second half to close around $2400 (Rs 73000), creating a bearish “Inverted Hammer” candlestick pattern on weekly charts.

Gold gained bullish momentum and surged above $2400 (Rs 73000) on broad-based USD weakness. Technically Gold prices have given a bullish breakout of the triangular pattern and a weekly closing above it. This opens the door for extra gains towards the previous high of $2450 (Rs 75000) and more in the coming days if momentum builds on.

Gold is trading in a range with a descending triangle with lower highs and higher lows. The triangle is becoming narrower and narrower every week, so a breakout is imminent.

This week, gold prices have remained stable between $2300 and $2365. On an annual basis, gold prices are up 21% since the end of the second quarter of 2023. Inflation is not decreasing, geopolitical tensions are not reducing, and government deficits are increasing. This provides significant support for gold.

Following the announcement of higher-than-expected US PMI data, gold and silver erased all of their gains for the week on Friday. The report revealed that US manufacturing and services activity remained strong, implying that inflation and interest rates will continue high for longer.

The most important event this week was the FED meeting. As the Fed maintains hopes for at least one rate cut this year, precious metals investors consider the inflation picture. If Fed officials deviate from market expectations of a policy shift before the end of the year, US Treasury bond rates may rise, making it challenging for Gold to remain stable. On the other side, gold is expected to draw buyers if policymakers go for two rate cuts in September and December.